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Is US Job Market Getting Too Hot?

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The ADP national employment report

ADP, a human capital management solution provider, releases a monthly report on US non-farm employment. The report shows changes in employment levels and hiring segregated by sector and company size. ADP processes payrolls of approximately 24 million workers in the US alone and operates in other parts of the world, giving it a unique vantage point of the job market. This monthly report is prepared by using actual anonymous payroll data of 411,000 clients that ADP services. The report is released two days before the non-farm payrolls data, so this report prepares markets for any surprises in the jobs report.

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2018 starts with a bang

As per the ADP January national employment report, the US private sector added 234,000 jobs in January, which is marginally lower than the December reading of 242,000 jobs but still above the 200,000 level. Ahu Yildirmaz, the vice president of the ADP Research Institute, said that the new year began with another month of gains. She said that the service sector (IYG) has witnessed a strong start with similar gains in mid-size and large companies (VOO). Hiring in smaller firms (IWO) has seen a minor decline in January.

Market reaction to the ADP report

The US financial markets (SPY) consider the ADP report as a preview to the BLS report and react accordingly, but this time, there are many issues that are more important than the ADP report. President Trump’s State of the Union speech and the FOMC January meeting were scheduled for the same day, leaving little room for any impact from the ADP report. However, this month’s ADP report points to another strong rise in private payrolls, signaling a strong start to the US economy (QQQ) in 2018.

In the next part of this series, we’ll analyze the ADP national employment report and understand which sectors in the job market reported the best increase in jobs last month.

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